Why India would accept 18% tariffs when effective rates were once 2-3% under preferences lost in 2019

India and the United States have reached a significant trade agreement, slashing U.S. tariffs on Indian goods from a punishing 50% to 18%, effective immediately. The deal, announced by U.S. President Donald Trump following a phone call with Prime Minister Narendra Modi, marks the resolution of months of trade tensions that had strained bilateral ties. Indian Commerce and Industry Minister Piyush Goyal hailed it as a "historic" pact that protects India's national interests, particularly in sensitive sectors like agriculture and dairy, while opening "huge opportunities" for labor-intensive industries.

The breakthrough came after prolonged negotiations, with the agreement sealed shortly after India finalized a separate trade deal with the European Union just a week earlier. Trump described the pact on his social media platform as a major win, claiming India had committed to halting purchases of Russian oil, shifting toward U.S. energy supplies, and potentially importing Venezuelan crude. He also stated that India would reduce its own tariffs and non-tariff barriers on U.S. goods to zero and aim to purchase over $500 billion worth of American products in areas such as energy, technology, agriculture, and coal. Modi, in response, expressed delight at the reduced 18% tariff on "Made in India" products and thanked Trump for his leadership.

A former representative to the UN emphasized that the deal is not a classical trade agreement but a "Trump-era tariff declaration," where announcements precede detailed legal texts. He likened it to a truce in peace negotiations, with the settlement still underway. Acknowledging the reduction from 50% to 18% as a substantial achievement in a changed global landscape, he argued that the deal provides India with space to address broader challenges, including its northern neighbor, China. "Geopolitically, economically, and politically, this is a big deal," he said, stressing that the path is clear despite pending details. He dismissed fears of the "devil in the details," noting that the new tariff level makes Indian products competitive and opens doors for investment and innovation.

A senior member of a Washington think tank “Centre for a New American Security” acknowledged Trump's unpredictability, citing examples like South Korea and Iran, but viewed the deal as a win-win. She pointed to the tariff drop as a relief for Indian exporters and a strategic necessity for the U.S. to rebuild trust. She suggested external pressures, such as India's recent EU free trade agreement, may have hastened the U.S. decision. However, she cautioned that tensions from the past year—including the India-Pakistan conflict aftermath—have damaged trust, which won't recover overnight. "We have taken a major step forward, but we're not out of the woods," she warned, emphasizing opportunities in areas like critical minerals and pharmaceuticals.

A professor in California specialized in security related matters raised red flags, arguing the deal favours the U.S. He compared pre-Trump tariffs of 2-3% to the new 18%, calling it unfair and akin to India's neighbors like Pakistan at 19%. "I can't really see how this is a good deal for India," he said, lamenting the setback after decades of progress. He criticized Trump's bullying tactics and handshake deals, predicting potential reversals. On Russian oil, he saw Trump's tweet as unilateralism for domestic gain, advising India to stand firm like China did. While conceding a deal is better than none, he warned of long-term issues from conceding to a "mercurial" leader.

Regarding the political angle, the political surrounding the deal was palpable, with the opposition, led by Congress's Rahul Gandhi, labeling it a "massive surrender." In the Lok Sabha, Rahul accused Prime Minister Narendra Modi of being compromised and arm-twisted into concessions due to alleged pressures. Key criticisms included India's agreement to halt Russian oil purchases, seen as a blow to strategic autonomy; the reduction of tariffs and non-tariff barriers to zero on US goods, potentially harming local industries; a commitment to buy over $500 billion in American products; and unprecedented access for US agricultural products, which could undermine Indian farmers.

Rahul Gandhi questioned why Trump announced the deal first, calling it a "walkover" for America. The government, represented by Commerce Minister Piyush Goyal refuted these claims, asserting that the deal prioritizes India's interests, including protections for farmers and the dairy sector. Other Congress and opposition party leaders argued that the sudden breakthrough after months of stalemate reeks of political exigency, questioning why India would accept 18% tariffs when effective rates were once 2-3% under preferences lost in 2019. One of them warned that India has already lost the "China Plus One" race to countries like Vietnam and Thailand, which enjoy lower production costs and better US access, rendering the deal ineffective for boosting exports.

BJP leaders however called the deal as “historic” and “occasions for celebration”, noting India's success in securing five major agreements in the past year, including with the EU, Australia, and UAE. A party spokesperson clarified that the 18% tariff gives India an edge over China and positions it as a global economic leader, per IMF projections. He dismissed the opposition's unhappiness as rooted in their failure to politicize the impasse, citing past debunked allegations like the Rafale deal. He emphasized that negotiations involve give-and-take, and India's agriculture, especially dairy, remains safeguarded.

As the fine print awaits release, the India-US trade deal remains a polarizing topic. Proponents see it as a gateway to growth and global leadership, while detractors view it as a hasty capitulation eroding sovereignty. With joint statements promised, the true impact—on consumers, farmers, and the economy—will only emerge once the ink dries, potentially clarifying the cloud of allegations and economic projections.